Why Apple Doesn’t Need the iTunes Store
Does Apple really need the iTunes Store? That is a question many fans of the company have probably asked themselves at some point in time. I say Apple does not. Why? Because, as always, Apple is making money off the hardware, ie., the iPod. And though music, movies, and TV shows cannot be considered software, it’s the same old story. Apple is first a hardware company, and then a software and content vendor.
After the millennium had passed, and it turned out that Macs weren’t the only computers unaffected by the dreaded Millennium Bug, a feared computer glitch that inspired numerous articles, studies, and even books, Apple secretly bought out a popular Mac OS MP3 player called SoundJam MP. The reasons for this were, at the time, unknown, as was the deal itself. We all know now that it was part of Steve Jobs’ plan to dominate the world create an ecosystem the upcoming iPod music player would become a part of. SoundJam MP went on to become iTunes, the wonderful music organization and playback tool that millions of Windows and Mac users (and even some Linux ones!) utilize on a daily basis.
As we all know, the digital music craze really started with Napster (Macster, on the Mac). Jobs clearly wanted Apple to cash in on the phenomenon, and created two products that would become integral pieces of the puzzle, whether or not the music itself was something the company would be able to profit from. Even today with Napster gone and Grokster, WinMX, and Kazaa either shut down or “converted,” legal music downloads make up only a fraction of the music on the average iPod. Jobs recently stated in his letter titled “Thought on Music” that “only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM.” So, it’s a known and widely accepted fact that we all have some amount of music that’s either been “pirated” or imported from CDs.
Apple was smart and from the beginning focused on constantly improving iTunes, its music playback application, and marketing the iPod, its portable media player, and making sure it was always ahead of the game for features, portability, and usability. Both the iPod and iTunes are things that can’t be “pirated,” simply because they don’t need to be. iTunes is a freely downloadable application, and Apple is the only company that makes a portable music player that is remarkably easy to use and sync entire music libraries quickly with. So, that was one less, and very formidable, competitor for Apple: piracy. Having only to strive against large, stagnated corporations is something I am sure the executives at Apple were joyed by.
Why did Apple set up the iTunes Store at all, then? To offer its customers an easy and legal way to acquire music online, of course. And what an amazing job the company has done with it! I bet every one of the five big music companies would have loved to become the number one online music retailer in the United States. If you think about it, that is an impossible task. To achieve that, a company would have to be able to offer music from all five of the record companies, and a number of independent labels. Which one of the music houses would let another sell its artists’ music online, let alone sell music from independent artists? A third party was needed, and Apple was the perfect entity to launch a music store, considering it was about to release a Windows version of iTunes. Until then, Windows users were forced to use MusicMatch Jukebox to sync their music libraries with their iPods. But giving consumers an easy way to purchase music online wasn’t the only reason Apple launched the iTunes Store. It also knew that building in a legal alternative to the many peer-to-peer networks where people got their fix of copyrighted music illegally would potentially save Apple and its customers from the RIAA’s hounds.
Last month, a number of European countries, including France, Germany, and Norway, demanded that Apple open up Fairplay to its competitors, so that songs purchased from the iTunes Store aren’t locked into a single portable media player (iPod). European consumer groups say that people should be able to play their music on a device of their choice. Steve Jobs made it clear in his letter that there was no chance of Apple opening up Fairplay to other vendors, but at the same time urged record companies to give up on DRM altogether. I believe Apple has nothing to lose if it opens up Fairplay. As long as iTunes and the iPod remain the easiest to use and most appealing music application and portable media player, Apple has little to worry about. And though I have my doubts about iTunes 7, I see no alternative. iTunes’ only (possible) competitor is Songbird, an open source application that is still too buggy and complicated to make any self-respecting iPod owner even consider it.
When it comes to Europe, there are two possible scenarios.
The first: Record companies agree to sell their music without any DRM on the iTunes Store, and Apple continues business in Europe and probably sees a surge in revenue; a lot of people don’t want to invest in DRM’d music.
The second: Record companies don’t budge, and Apple gracefully bows out of Europe, but retains its grip on the portable media player market. Europe becomes just another Asia.
Despite the fact that Japan is the only Asian country with an iTunes Store, the iPod is still one of the, if not the most, popular MP3 players in all of Asia, if you exclude mobile phones. So my question is, does Apple really need the iTunes Store? I don’t think so. Apple makes its money off the hardware, in this case, the iPod. It always has. Despite being urged on various occasions to license Mac OS X to computer hardware vendors like Dell, Apple has stuck to selling its software, and content, only to support its own hardware products. Apple does not need the iTunes Store to succeed in Europe; it’s the record companies that do. If there’s a legal alternative that’s actually given piracy some competition, it’s the iTunes Store. Imagine what would happen if content bought from the store was DRM-free. We would undoubtedly see an increase in sales. If Fairplay goes away, Apple has nothing to lose, and consumers have everything to gain, as do content producers.